How To Hack The FAFSA In 2027-28: 7 Legal Moves That Lower Your SAI

The FAFSA Simplification Act introduced significant changes to the financial aid formula, eliminating the sibling loophole and the asset protection allowance. The One Big Beautiful Bill Act then changed the formula again, restoring the exclusion for family businesses and farms and capping Pell Grant eligibility at a higher Student Aid Index. Despite these changes, several strategies remain (and new ones have emerged) for maximizing need-based financial aid eligibility on the 2027-28 FAFSA.

You just have to know what to do and where to look before you file the FAFSA.

New strategies involve contributions to certain types of retirement plans, exclusion of grandparent-owned 529 plans, exclusion of sibling 529 plans, rollovers from a 529 plan to a Roth IRA and exclusion of gifts to the student.

Which Tax Year Does The FAFSA Use?

The FAFSA uses income from two years before college starts. The 2027-28 FAFSA, which opened September 23, 2026, uses 2025 income. The 2028-29 FAFSA, which today's high school juniors will file, uses 2026 income.

That two-year gap decides which moves still work. Income moves only count if they happen in the right tax year, so a high school senior's family can no longer change 2025 income. A junior's family has until December 31, 2026 to lower their adjusted gross income for the 2028-29 FAFSA.

Asset moves work differently. Assets are reported as of the day you sign the FAFSA, so moving a 529 plan or paying down debt helps as long as it happens before you file. Our Student Aid Index chart shows how much a lower SAI can be worth.

What The Colors In The Table Mean

The table below sorts the seven moves by when they need to happen. Red moves are tied to the tax year the FAFSA counts, two years before college, and gold moves only need to happen before you file. Green rules apply to every FAFSA you file while the student is in school.

Red is the window that costs families the most. Selling stock at a gain or exercising stock options in a year the FAFSA counts adds the full amount to adjusted gross income, which can raise your SAI for that aid year. The move is to sell appreciated investments and exercise options before that window opens.

For a student starting college in fall 2028, that means by December 31, 2025, the middle of sophomore year of high school. Gains taken after that date, through December 31 of the student's sophomore year of college, land in a year a FAFSA counts. Unavoidable gains in those years can be offset by selling investments at a loss in the same year.

Retirement Plan Contributions

The treatment of retirement plan contributions has shifted under the simplified FAFSA:

• Pre-Tax Contributions to 401(k) and 403(b): Previously, all retirement contributions were added back to income. Now, contributions to 401(k) or 403(b) plans are excluded since they don't appear on federal tax returns. Increasing pre-tax contributions in the tax year the FAFSA counts, two years before college, can lower income and boost aid eligibility. The 2026 contribution limit is $24,500, plus an $8,000 catch-up for workers age 50 and older.
• Traditional IRAs and Similar Plans: Contributions to traditional IRA, Keogh, SEP-IRA, and SIMPLE plans still count as income because they are reported on tax returns.
• Retirement Distributions: Distributions from any retirement plan, including an untaxed return of contributions from a Roth IRA and the untaxed portions of IRA, pension and annuity distributions, are still included in total income on the FAFSA.

Retirement plan balances are NOT reported on the FAFSA as an asset. That makes the 401(k) contribution limits one of the few places a family can move money that lowers both reported income and reported assets at the same time.

529 College Savings Plan Reporting

FAFSA Simplification made several changes regarding how 529 plans are treated:

• Grandparent-Owned 529 Plans: Qualified distributions from grandparent-owned 529 plans no longer count as untaxed income to the beneficiary. They are also not reported as assets on the FAFSA. Accordingly, these plans are now fully excluded from FAFSA calculations and do not have any impact on eligibility for need-based financial aid. Non-qualified distributions, however, continue to be included as part of adjusted gross income (AGI). Families may consider changing the account owner of a parent-owned 529 plan to a trusted grandparent or other relative. If the 529 plan does not allow a change of account owner, you may be able to rollover the funds to a new 529 plan in the same state with the same beneficiary but a different account owner.
• Sibling 529 Plans: Sibling 529 plans are now excluded from FAFSA calculations, even if the parent is the account owner, thereby increasing aid eligibility. Families with multiple children should consider setting up separate 529 plans for each child, enabling more tailored investment strategies, potentially larger tax benefits and greater contribution limits. One can also temporarily change the beneficiary to a sibling before filing the FAFSA and then change the beneficiary back to the student before taking a distribution.
• Rollover to a Roth IRA: Families may roll up to $35,000 from a 529 plan to a Roth IRA for the beneficiary, subject to conditions like a minimum 15-year holding period and annual Roth IRA contribution limits. With the 2026 IRA limit at $7,500, it can take up to five years to fully rollover the $35,000 lifetime limit.
• CSS Profile Considerations: While the FAFSA no longer considers grandparent-owned 529 plans and sibling 529 plans, the CSS Profile (which less than 200 mostly private colleges use) still does. CSS Profile schools include all 529 plans listing the student as a beneficiary, regardless of ownership. Families applying to such schools should account for these differences.

Gifts To The Student

Gifts to the student are no longer reported as untaxed income to the student because the cash support question has been eliminated. So, grandparents can give gifts to their grandchildren without worrying that the money will be treated as income on the FAFSA.

However, unspent gift amounts must still be reported as an asset on the FAFSA, which may reduce aid eligibility by 20% of the net asset value. Grandparents who want to avoid that hit can contribute to a 529 plan they own instead of giving cash to the student.

Other Changes And Tips

Here are some other tips:

Sibling Loophole

Although the sibling loophole has been eliminated on the FAFSA, a version of the sibling loophole remains on the CSS Profile form. The CSS Profile reduces the parent contribution when there are two or more children in college. Under the College Board's methodology, the parent contribution is reduced by 40% when there are two children in college, by 55% when there are three, and by 65% when there are four or more.

Although the number in college question remains on the FAFSA, it no longer affects the Student Aid Index (SAI). One can appeal when one has an unusual number of children in college, but college financial aid administrators are unlikely to make an adjustment in response to the financial aid appeal. They are more likely to make an adjustment when the parents are enrolled in college (e.g., subtracting the paid bursar's bill from parent income).

Divorce And Separation

The FAFSA now bases reporting on the parent who provides the most financial support during the 12 months ending on the date the FAFSA is filed, rather than the parent with whom the student lives. The living accommodations and meals provided by the parent to the student can be considered to be in-kind support.

Other children must live in the household and receive more than half support from the parent to be counted in family size. Previously, the child just had to receive half support, but now they must also live in the household. This means that a stepparent cannot count children from a prior marriage unless they live with the stepparent. (Graduate students must also live with the family. However, temporary absences for school, illness, business, vacation or military service do not affect whether the child lives with the family, if there is a reasonable expectation that the child will return to the home.)

The Tax Cuts and Jobs Act of 2017 changed the reporting of alimony on federal income tax returns for new and modified divorces starting in 2019. Alimony is no longer subtracted from the payer's income and added to the recipient's income. If the recipient is the parent responsible for completing the FAFSA, this may yield lower income, increasing the likelihood that the student will qualify for the Federal Pell Grant.

Related: How To Fill Out The FAFSA For Divorced Families

Assets

The Asset Protection Allowance (APA) is now zero, so assets are no longer sheltered based on the age of the older parent. The 2027-28 need analysis tables keep the allowance at $0 for every age.

However, some applicants are exempt from asset reporting. There are three circumstances in which assets will be disregarded on the FAFSA:

• The student qualifies for the maximum Federal Pell Grant.
• The parents' adjusted gross income (AGI) is less than $60,000 and the parents satisfy the type of tax return test. (This can also apply to independent students.) The type of tax return test requires the taxpayer to have not filed Schedule A, B, C (for more than +/- $10,000), D, E, F or H.
• Someone in the household received a means-tested federal benefit in the last two years. Eligible federal benefits include SNAP, EITC, Federal Housing Assistance, Free or Reduced-Price School Lunch, Medicaid, QHP, SSI, TANF and WIC. Depending on the benefit, eligibility ranges from 50% of the poverty line to 200% of the poverty line.

Child support received is reported as an asset, not as income. Because assets are assessed at a lower rate than income in the SAI formula, that treatment reduces the effect of child support on aid eligibility.

Family Businesses And Farms Are Excluded Again

Starting with the 2026-27 FAFSA, the net worth of a family-owned small business no longer counts as an asset. The One Big Beautiful Bill Act restored the exclusion that FAFSA Simplification had removed, according to NASFAA's summary of the Education Department's guidance.

The exclusion covers a business with 100 or fewer full-time or full-time-equivalent employees that the family owns and controls, a family farm on which the family lives, and a commercial fishing business the family owns and controls. Larger businesses, investment farmland and rental real estate are still reported, with business and farm net worth adjusted using the federal tables.

The CSS Profile doesn't have to follow the federal rule. Families with a business who apply to CSS Profile schools should expect those colleges to ask about business assets and to apply their own methodology.

Income Thresholds 

The Income Protection Allowance (IPA) increased significantly under FAFSA Simplification, sheltering more income from being counted. For the 2027-28 FAFSA, dependent students have an IPA of $12,220, while married independent students with dependents have $59,930 for a family of three.

The following IPA figures for the 2027-28 FAFSA come from the Education Department's need analysis tables. They depend on whether the student is a dependent or independent student, whether they have a spouse, and whether they have dependents other than a spouse.

Eligibility for the Federal Pell Grant now may depend on a secondary formula, which compares income to a multiple of the poverty line. For the 2027-28 FAFSA, the SAI and Pell eligibility formulas use the 2025 poverty guidelines.

• 175% of the poverty line (225% of the poverty line for single parents) for the maximum Pell Grant.
• 275% of the poverty line (325% of the poverty line for single-parent dependent students, 350% for independent students with dependents and 400% for single-parent independent students) for the minimum Pell Grant.

Two rules from the One Big Beautiful Bill Act now limit Pell Grant eligibility. A student whose SAI is at least twice the maximum Pell Grant is ineligible for a Pell Grant, even if the poverty-line test would otherwise qualify them. For the 2026-27 award year that cutoff is $14,790, according to the Education Department's Pell Grant announcement, and the 2027-28 cutoff depends on the maximum Congress sets.

The second rule affects families who work abroad. Any foreign earned income exclusion is now added back to AGI for the Pell eligibility tests, so excluded foreign income no longer helps a family qualify for a Pell Grant.

Old Tips Still Apply

Several tried-and-true strategies remain effective:

• Avoid realizing capital gains during the base year or offset them with losses. Also avoid exercising stock options.
  
• Avoid taking distributions from retirement accounts, even a tax-free return of contributions from a Roth IRA.
  
• Use cash to pay down debt, reducing reportable assets.
  

Final Thoughts

FAFSA Simplification and the One Big Beautiful Bill Act introduced significant changes, but savvy families can still maximize aid eligibility by leveraging new strategies and adapting old ones. Families who understand how the FAFSA treats income, assets and savings plans can estimate their SAI before they file and make each move in the right year.

Frequently Asked Questions

Which Year's Income Does The 2027-28 FAFSA Use?

The 2027-28 FAFSA uses 2025 income and tax information. The 2028-29 FAFSA will use 2026 income, so families of current high school juniors can still change the income that FAFSA will count through December 31, 2026.

Does A 401(k) Contribution Lower Your FAFSA Income?

Yes. Pre-tax 401(k) and 403(b) contributions don't appear in adjusted gross income, and the FAFSA no longer adds them back. Traditional IRA, SEP-IRA, SIMPLE and Keogh contributions still count as income.

Does A 529 Plan Hurt FAFSA Aid?

A parent-owned 529 plan for the student counts as a parent asset, which has a smaller effect than student assets or income. Grandparent-owned 529 plans and 529 plans for siblings aren't reported on the FAFSA at all. CSS Profile schools still count every 529 plan that names the student as beneficiary.

Can Grandparents Pay For College Without Affecting The FAFSA?

Yes. Gifts to the student are no longer reported as income, and grandparent-owned 529 plans aren't reported as assets or income. Cash gifts the student hasn't spent by the time the FAFSA is filed still count as student assets.

Does A Family Business Count On The FAFSA?

Not if the family owns and controls it and it has 100 or fewer full-time or full-time-equivalent employees. That exclusion returned with the 2026-27 FAFSA. Larger businesses are still reported, and CSS Profile schools may count business assets under their own rules.